The stop-loss/take-profit strategy is among the most important in forex trading. The stop-loss position is the extreme point of the market where beyond it, you do not expect to make any gains. The take-profit position, on the other hand, is the point in the market from where you plan on locking in the profits that you have earned. In either case, the trigger of the points locks the assets and exits the market. The stop-loss/take-profit is extensively used by traders to make safe trades. For this strategy to work, however, you need to consider several things. Here are some of the things you should take into account in order to benefit from the stop-loss/take-profit strategy.
Choose the right metrics to determine the stop-loss and take-profit positions
The stop-loss and take-profit positions can be determined in a number of ways depending on what is important to a particular trader. In general, the stop-loss and take-profit points can be determined by three key things:
- The chart data
- A percentage of assets
- Volatility
The chart data is key in showing support and resistance levels in the market. This data is key in indicating the direction the market will take. By observing the market trend, therefore, the stop-loss/take-profit points can be determined. Secondly, the number of assets invested can also determine the position where the stop-loss/take-profit go. If you are not willing to risk funds beyond a certain percentage, then you can use them to place the stops. Finally, the volatility of the assets can also be used to a trader’s advantage. Predicting the volatility of particular currencies can aid with a successful stop-loss/take-profit deployment.
Use the right indicators
Not all indicators are great with the stop-loss strategy. Technical indicators are usually the best when it comes to using the strategy since they rely on technical analysis. These trading indicators take into account deeper insights as they are tuned to the market data. When a stop-loss is used in technical indicators, the strategy can be considered to be reliable because the stops will only get triggered when the market strategy has failed. This is also the same circumstance that applies to the take-profit.
Move the levels when necessary
It is generally not a good idea to keep moving the stop-loss and take-profit points. Sometimes, however, it becomes necessary to do so, especially when you notice that you might have ignored some indications in your initial estimations. Many traders make the mistake of playing safe when they should not. Other traders become overzealous when they should not. In case you realize that you have made such ill-informed mistakes, you can definitely adjust the stop points. Moving the levels should not be a habit, however, as it presents great risks.
In conclusion, the use of this strategy is just one way of minimizing risks and making profits. There are also other ways to make gains in the forex market (also known as “Forex kereskedés” in Hungary). The most important thing to remember when using trading tools is that assets can only be risked to a rational extent.
